EU,UK,TCA electric accumulators and electrified vehicles

The proposal (COM/2023/950 final) for a Council decision “…on the position to be taken on behalf of the European Union in the Partnership Council established by the Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part as regards the transitional product-specific rules for electric accumulators and electrified vehicles…” has been published.

In particular, the decision aims to adopt of a decision to amend the transitional product-specific rules for electric accumulators and electrified vehicles in Annex 5 of the EU-UK Trade and Cooperation Agreement (TCA) to:

extend the period of application of the product-specific rules in SECTION 1 of Annex 5 until 31 December 2026;
cease the application of the product-specific rules in SECTION 2.

The annex 5 on “transitional product-specific rules for electric accumulators and electrified vehicles” in the section n.1 lays down the “…Interim product-specific rules applicable from the entry into force of this Agreement until 31 December 2023…”. In particular, “…For the products listed in column 1 below, the product-specific rule listed in column 2 shall apply for the period from the entry into force of this Agreement until 31 December 2023…”:

DEFINITION: Accumulators containing one or more battery cells or battery modules and the circuitry to interconnect them amongst themselves, often referred to as “battery packs”, of a kind used as the primary source of electrical power for propulsion of vehicles of headings 87.02, 87.03 and 87.04. CURRENT AND NEXT RULES OF ORIGIN: CTSH; Assembly of battery packs from non-originating battery cells or battery modules; or MaxNOM 70 % (EXW).

DEFINITION: – Battery cells, battery modules, and parts thereof, intended to be incorporated into an electric
accumulator of a kind used as the primary source of electrical power for propulsion of vehicles of headings
87.02, 87.03 and 87.04. CURRENT AND NEXT RULES OF ORIGIN: CTH; or MaxNOM 70 % (EXW).

DEFINITION: vehicles with both internal combustion engine and electric motor as motors for propulsion other than
those capable of being charged by plugging to external source of electric power (“hybrid”);
– vehicles with both internal combustion piston engine and electric motor as motors for propulsion capable of being charged by plugging to external source of electric power (“plug-in hybrid”);
– vehicles with only electric motor for propulsion. CURRENT AND NEXT RULES OF ORIGIN: MaxNOM 60 % (EXW).

“NOM” stands for “ non originating (neither EU nor UK originating goods);
“CTSH” means production from non-originating materials of any subheading, except that of the product; this means that any non-originating material used in the production of the product must be classified under a subheading (6-digit level of the Harmonised System) other than that of the product (i.e. a change in subheading);
“EXW” or “ex-works price” means “(i) the price of the product paid or payable to the producer in whose undertaking the last working or processing is carried out, provided that the price includes the value of all the materials used and all other costs incurred in the production of the product, minus any internal taxes which are, or may be, repaid when the product obtained is exported; or (ii) if there is no price paid or payable or if the actual price paid does not reflect all costs related to the production of the product which are actually incurred in the production of the product, the value of all the materials used and all other costs incurred in the production of the product in the exporting Party: (A) including selling, general and administrative expenses, as well as profit, that can reasonably be allocated to the product; and (B) excluding the cost of freight, insurance, all other costs incurred in transporting the product and any internal taxes of the exporting Party which are, or may be, repaid when the product obtained is exported; (iii) for the purposes of point (i), where the last production has been contracted to a producer, the term “producer” in point (i) refers to the person who has employed the subcontractor…”.

In general, the TCA or Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community and the United Kingdom of Great Britain and Northern Ireland entered into force on 2021 and established the “Partnership Council” to oversee the attainment of the objectives of the Agreement and supervises and facilitates its implementation and application.

This proposal is highlights that:

“…The global security, economic and trade context, including Russia’s aggression against Ukraine, the COVID pandemic, and the competition from international subsidy support schemes, and its consequences (soaring energy costs, high inflation) have led to the postponement of some investments in the European battery ecosystem. This led to an undersupply of electric batteries necessary for electric vehicles produced in the EU. As a result, the EU industry has raised concerns that European automotive exports to the United Kingdom will not comply with the incoming rules on origin, foreseen to become applicable as of 1 January 2024, leading to tariffs imposed on those exports, followed by the loss of their competitiveness on the UK market. The envisaged act aims to provide industry with a bridging mechanism, allowing the continuation of the application of the current, less strict rules of origin for electric accumulators and electrified vehicles until 31 December 2026…”;
“…However, the ultimate objective of these rules of origin is to incentivise the investment in a battery manufacturing capacity in the EU and in the United Kingdom. Therefore, from 1 January 2027 the product-specific rules of origin specified in Annex 3 to the Trade and Cooperation Agreement will apply, as originally envisaged…”

These rules must be taken into account by the economic operators and by the AEO beacuse they need to be compliant with the rules of origin laid down by the protocol of origin of the TCA. The AEO companies, especially, have to answer, according to AEO guidelines 2016 “TAXUD/B2/047/2011 –Rev.6”, the question 1.3.4 of the self assessment questionnaire (SAQ) “….a) Give an overview of the preferential or non-preferential origin of the imported goods. b) What internal actions have you implemented to verify that the country of origin of the imported goods is declared correctly? c) Describe your approach in the issuing of proof of preferences and certificates of origin for exportation…”.

These questions must be answered according to the following explanations: “…1.3.4

For question (b), internal actions would normally include measures on how you ensure that:

the exporting country is entitled to give a preference and that the goods attract a preferential rate of duty;
the direct transport/non-manipulation requirements are met;
a valid and original certificate or an invoice declaration is available when preference is claimed;
the certificate or invoice declaration is appropriate for the consignment and that the origin rules are met;
there is no opportunity to duplicate use of the certificate/invoice declaration;
import preferences are claimed within the period of validity of the certificate/invoice declaration, and
the original certificates/invoice declarations are retained as part of the audit trail in a safe and secure manner

For question (c), your approach should consider the way to ensure that:

goods qualify for an export preference, e.g. meet the rules of origin;
all necessary documents/calculations/costing/descriptions of processes to support preferential origin and the issue of a certificate/invoice declaration are retained as part of the audit trail in a safe and secure manner;
appropriate documents e.g. certificate or invoice declaration are signed and issued timely by an authorised member of staff;
invoice declarations are not issued for medium and high value consignments unless you have been approved by customs to do so;
unused certificates are stored safely and securely, and
certificates are presented as required to customs…”